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If an economist or Wall Street guru ever came out with a definitive book on what the stock market will do next week or next year, chances are most of us would want to own it. The fact is, many would-be investment counselors already line their pockets with the profits from such books, which promise readers all sorts of ways to 'read' the current market for future trends. Much of the advice in these books is indeed credible, if you're in a financial position to take advantage of free advice. Some other information, however, is fraught with half-truths and potentially dangerous advice. The sad truth is, most stock market investments are a melange of solid research combined with huge doses of luck and perseverance.
But there are some common sources of information that can give the average investor some indications of where the market may be headed in the short term, or what stock option may become the next big thing. Many people who consider investing in stocks fail to do the proper research, and wind up with stocks that do not move much in the long term. Others become swayed by fads and so-called 'hot stocks' that promise short-term gains but may create long-term disappointments. Nothing is a sure bet in stock trading, but here are some sources to consider before investing your money in the stock market.
1. Watch the packaging industry. This is a fairly well-kept secret among serious investors, but one you can use to your advantage when trying to read the economy. If you stop and think for a moment, what do most companies who manufacture consumer goods have in common? They all need packaging for their products. These boxes and wraps must be ordered in advance, so by watching the packaging companies' performance quarter by quarter, you can sense when a major increase in packaging has occurred. More packaging means more products being sold. More products being sold means more profit for the company. Judicious investing in the packaging industries themselves can give you advanced warning on any future swings in the consumer market.
2. Bestseller's list in the newspaper. If you want to get an idea of where consumers are headed next year, keep track of the best selling books this year. If a certain diet book advocates more protein in your diet, then consider investing in cattle futures. If the book is a success with consumers, the demand for meat should increase. Do the same calculations with any other non-fiction book- consider what people will be likely to do with this information. Will they run out and buy the newest fad item based on the book's recommendation? Find out what company has the rights to the hot item and invest for a short-term profit. Once demand for that fad item has died down considerably, get out quickly. Scan the bestseller's list again for more ideas on when the next consumer buying frenzy will hit.
3. Movie and music releases. Invest a few dollars on magazines and trade publications that discuss future movie and music releases. Entertainment companies can be volatile stocks in general, but if you can get enough notice of an anticipated blockbuster you can invest wisely. Smaller independent film companies are always looking for investors, but are usually burdened with tremendous outgoing expenses and a history of unsuccessful film releases (provided they even have a film history). By reading the trade papers, you can find out which movies are already being touted as sure-fire or breakout hits. By judiciously investing in entertainment companies that are due to release a major hit movie or new album by a promising new musician, you can reap the benefits without taking as much risk. Think of movies such as 'The Blair Witch Project', which netted an amazingly high return on investment.
4. Pay close attention to current world events. Many would-be investors only consider a company's domestic record when deciding on which stocks to buy. It is much better to know what a company's overseas holdings and interests are, in order to avoid surprises as an investor. A drought in Somalia may not sound newsworthy, but what if Somalia was the chief supplier of your company's main ingredient? Your interest in world events would change considerably, wouldn't it? The same holds true for every other development in the world. A civil war in one country may drastically affect how another country copes with their own economy. Supplies of vital parts could become limited, causing a general problem for your company's overseas operations. Conversely, some world events may affect the competition, which opens up new markets for your company and expansions are possible. A good newspaper is a wise investment for anyone interested in stock trading, especially during volatile times.
5. Look at what your children are doing and wearing. If you don't have children, look at someone else's. Trends are notoriously difficult to spot, because they can change so rapidly. But your children know what things are fads and what things have real staying power. Before you invest in the company that makes a popular product aimed at the teen market, do a little informal research with actual teens. Ask them if they feel that this item of clothing or this gadget is actually popular with their peers. You may be surprised to learn that some of the most heavily promoted items are not nearly as popular as you may think. Before you invest in any company that primarily caters to younger people, think like a teenager. Are there going to be upgrades and accessories available in the future? Will some other company come out with a better product in the near future? Is this thing really worth what I paid for it? Consumer electronic stocks can be fairly pricy, but if that company becomes the next Nintendo, the investment may be worth it. If the real consumers seem disinterested in the gizmo, however, you should be extremely cautious with your investment dollar.
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